Will exploit future acquisitions with Singapore-based GIC: Phoenix Mills MD

Shishir Shrivastava, MD of Phoenix Mills, talks about about the rationale behind the new venture with Singapore-based GIC.

Mall developer Phoenix Mills Ltd (PML) signed a term sheet with Singapore-based GIC to float a platform and invest in retail-led mixed use properties. Shishir Shrivastava, managing director of the company, spoke to Raghavendra Kamath about the rationale behind new venture and plans ahead.

What is the rationale behind Phoenix Mills going for a second platform?

PML continues to evaluate opportunities for growth on an ongoing basis. We remain committed to our shareholders in helping realise best value for our assets and help value unlocking at PML level. Capital required for such growth comes by way of asset monetisation once they reach predictable and strong cash flows. We have a very successful alliance with CPPIB with a focused strategy for greenfield and brownfield acquisitions. 

With, CPPIB, we were able to commit the deployment of the primary growth capital within 12 months of alliance formation and as on date, we have one operating retail-led mixed-use development with a sizable development potential and three under-development large mixed-use projects. We expect significant cashflows to be generated from this alliance with CPPIB to fund the expansion of existing developments.

The intent of the alliance with GIC is to exploit potential opportunistic acquisitions in the current environment with a preference for operating malls, distressed malls, brownfield malls and quick-turn around greenfield retail-focused projects.

Analysts say the deal might happen at a cap rate of 6.6 per cent. How did they get such an attractive cap rate in current times?

We prefer to not comment on GIC’s approach to valuation and the final deal valuation terms will be determined post due diligence. However, considering the strong performance of these assets, it is not surprising that valuation parameters will be superior to other mall transactions in the country.

When will you go for a REIT with GIC in the new platform?

We, along with the GIC will evaluate various options to monetise the platform, including a REIT. The timing of such monetisation discussion will be determined based on market conditions and normalisation of project yields after this crisis is behind us. We estimate that these assets will reach stable growth in 3-5 years and that may be a more apt time to evaluate any monetisation, if at all.

Why CPPIB did not yet join platform and why did you go for GIC?

We prefer not to comment on this

What kind of recovery you have seen in business since the onslaught of Covid-19?

Our nine malls across India accounting for 6.9 msft of gross leasable area (GLA) are currently operational. Most categories that are permitted to operate are already trading at our malls with the easing of restrictions on operating hours and opening of F&B and multiplexes. Several categories were permitted to operate by state governments only after October and November, thus a fair comparison with previous year’s performance would be the month of November 2020. Compared to last year, the consumption in the first four weeks of November stands at 87 per cent of last year level. November 2020 has seen a 36 per cent month-on-month growth compared to October 2020 consumption.

When do you expect a full recovery in business?

Current consumption trends leave us cautiously optimistic that FY22 should be similar to, if not better than, FY20 consumption levels.

Are you in talks with any developers for buying out brownfield or greenfield mall properties? What kind of drop have you seen in valuations?

In August 2020, the outlook for retail appeared very uncertain. However given current consumption trends and closure of waiver/discounts to retailer for the period of mall shutdowns, it gives us higher visibility on cash flows for FY21 and FY22. This gives us the confidence to reinitiate evaluation of opportunities in high-density micromarkets of select cities such as Hyderabad, Kolkata, Chennai, MMR, NCR and Chandigarh. 

Do you plan to launch new properties in FY21. If yes, which cities?

We launched our latest iconic mall the Phoenix Palassio at Lucknow in July 2020. Within 4 months of launch, the mall has already trading area of 65 per cent of GLA and trading density of Rs 1,000 psft per month. On offices, we will add approximately 0.66 msft of GLA during FY21. We have completed one office tower, Fountainhead Tower 2, in Pune in October and we are nearing completion of one more office tower in Pune, Fountainhead Tower 3.